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(Just) first time lucky ? The impact of single versus multiple bank lending relationships on firms and banks' behavior

  • Giorgia Barboni
  • Tania Treibich
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    The widespread evidence of multiple bank lending relationships in credit markets suggests that rms are interested in setting up a diversity of banking links. However, it is hard to know from the empirical data whether a rm's observed number of lenders is symptomatic of nancial constraints or rather a well-designed strategy. We design an experimental credit to analyze the determinants of multiple bank lending relationships, both from the demand and the supply side. Our results show that borrowers prefer multiple lending when they are credit rationed and unable to stabilize their lending source, whatever their risk level. Moreover, rationed borrowers are less likely to repay and display a higher tendency to switch between lenders. At the same time, we observe that the determinants of lending change according to the type of information available on the loan applicants. If their quality is not observable, only credit history and relationship length matter, while the borrowers' behavior clearly impacts the lending decision if information is complete. Our ndings support the view that the number of banking relationships is mainly determined by the supply side.

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    Paper provided by Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy in its series LEM Papers Series with number 2012/13.

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    Date of creation: 27 Aug 2012
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    Handle: RePEc:ssa:lemwps:2012/13
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    1. Luigi Guiso & Raoul Minetti, 2007. "The Structure of Multiple Credit Relationships: Evidence from US Firms," Economics Working Papers ECO2007/46, European University Institute.
    2. Martin Brown & Christian Zehnder, 2007. "The Emergence of Information Sharing in Credit Markets," IEW - Working Papers 317, Institute for Empirical Research in Economics - University of Zurich.
    3. Berger, Allen N & Udell, Gregory F, 1995. "Relationship Lending and Lines of Credit in Small Firm Finance," The Journal of Business, University of Chicago Press, vol. 68(3), pages 351-81, July.
    4. Carletti, Elena & Cerasi, Vittoria & Daltung, Sonja, 2004. "Multiple-bank lending: diversification and free-riding in monitoring," Sonderforschungsbereich 504 Publications 04-15, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
    5. Farinha, Luisa A. & Santos, Joao A. C., 2002. "Switching from Single to Multiple Bank Lending Relationships: Determinants and Implications," Journal of Financial Intermediation, Elsevier, vol. 11(2), pages 124-151, April.
    6. Brown, Martin & Serra-Garcia, Marta, 2011. "The Threat of Exclusion and Relational Contracting," Discussion Papers in Economics 12287, University of Munich, Department of Economics.
    7. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
    8. Ongena, Steven & Smith, David C., 2000. "What Determines the Number of Bank Relationships? Cross-Country Evidence," Journal of Financial Intermediation, Elsevier, vol. 9(1), pages 26-56, January.
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